Sunday, October 28, 2012

Trans-Tasman Blues – the Housing Crisis and Our Future

Boxed in thinking

While filling in time in the Auckland International Airport
waiting hall last Thursday I read about a Property
Council discussion of what accommodating an extra 1.2
million people over the next 30 years might entail. Martin Udale, the development expert
heading Essentia Consulting Group, talked about having to push the envelope to meet
the challenge posed by the Council’s
population growth expectation and its commitment to housing three quarters of that growth over the next thirty years within the city's boundaries: that's 10,000 new dwellings a year (not counting any catch up from the
current shortfall ).

This is going to need as much as 15% of the current stock to first be demolished, to be replaced with infill housing – apartments and townhouses -- at a ratio of perhaps three or four new for every one knocked down . But for this to
happen, Martin said, Aucklanders -- and that includes planners -- have to first "get over their phobia about height".

Affordable living, Auckland City

Now that’s a challenge. Building medium density housing to a
standard and in localities that Aucklanders might like at a price they might afford
has so far proven well nigh impossible. New apartments are generally
over-priced relative to detached houses because of land prices in preferred
locations, consenting and development challenges, and construction costs. The result has often been cost cutting and poor construction. Consequently, most apartments built over the last 15 years cater
for transient populations – students, recent immigrants, solos, non-family
groups –often in tight accommodation.

Outside the box

There are other options for increasing densities – in
greenfields, satellite towns, and through selective
suburban infill and brownfield redevelopment (including developments modelled
on retirement communities and suburban villages). Going down this path – of decentralised
intensification --- would take a serious re-think by the city fathers, though,
and their planning advisors.

But if we take on the challenge of demolishing 50,000 to
85,000 of our existing housing to build apartments and townhouses, we might
inadvertently solve the problem another way: by stalling population growth.

Or outside the country
The slowdown is already here. And intensification along the proposed lines with
the congestion and loss of amenity that goes with it will make Auckland that
much less liveable and Australia that much more attractive.

Affordable living, Sunshine Coast

Which brings me back to why I was waiting at the airport. My wife was returning from visiting our three
Australian-based children and their families. She’s beginning to think we
should move there. Some of our friends have
done just that. Even though they are not
far off retirement age, their skills and experience are transportable if they
want to work in Australia and be closer to their families.

And they are in good company. According to Statistics New Zealand
(SNZ) there was a net national loss (an
excess of long-term departures over arrivals) to Australia of 486,000 people over
the past 30 years, 212,000 of those in the last ten years alone (September
years). The trend has been accelerating (Chart
1). Add that to the cyclical nature of movements
from other countries and we can anticipate more, and more prolonged, net migration
losses from all sources in the future.

The latest
population projections from SNZ suggest that there could be another 480,000
people living in Auckland in 20 years time under a “medium scenario”, a figure which more or less lines up with 10,000 new dwellings a year.
Over a third of this growth is based on assumed migration gains . Of course, some of the
natural increase projected also depends on migration : fewer migrants = fewer babies.

Going down

So I took a look at the assumptions behind the projections. According
to SNZ sources, there was a net gain of 66,600 international migrants (arrivals
less departures) in the five years ending 2006, but that dropped 56% to 37,700
between 2006 and 2011 (September years).

And the net loss from Auckland to other parts of New Zealand
from internal migration has been growing –18,000 estimated between 2001 and
2006. So, international and internal migration
over those boom years contributed around 48,000 new citizens, 9,600 a year.

Without a 2011 Census subsequent internal
movements cannot be calculated. But since
2005 gains from international migration have continued to fall, down to an average 7,000 a year.
The trend continued in 2012 with a gain of just 4,100 (Chart 2).

The SNZ medium assumptions in fact assume an average 6,000 gain in migration through
to 2016 (actually, that’s now closer to 6,500 following the overshoot in 2012), before
it is assumed to jump back to boom-time figures of 9,000 a year for the next 15
years. But the conditions experienced ten
years ago are unlikely to be repeated in the foreseeable future. And our longer history certainly doesn't support a view of such prolonged gains. And even a modest 6,000 a year through to 2016 looks out of reach if real house prices cannot be brought down to where they were a decade ago.

So who are we losing?

So what does this mean?
Well, over the past twenty years, more than half of the people who have
left Auckland have been aged between 15 and 34 (again, based on SNZ data), mostly
educated young adults at the start of their work career and entering the
housing chain. Lose them, and we can trim our housing demand figures. More than that, though, we can reduce our aggregate fertility expectations and lower forecasts of workforce growth

Some of these young adults are embarking on the traditional New Zealand passage of rite, the Overseas Experience trip – rather like
my daughter and her partner did ten years ago.
But they are now well settled north of Sydney with an affordable home,
pool and yard for the children, great amenities, good friends, good schools and jobs. I don’t see them – or many others like them – heading back this way in my lifetime.

In any case, Chart 3 shows a shift over time towards more family groups
leaving, older adults and children. This is worrying because they don't make such a significant move without good reason.
Could it be tied up with housing affordability? Is it associated with the challenges facing the
intermediate housing sector – people with good jobs and dual incomes still unable to afford
a house in Auckland ? And not wanting to live in ever-more
crowded suburbs?

Chart 3: Age Distribution of People Leaving Auckland for the Long-Term

Of course, there is always the prospect of resurgence in
immigration from Asian origins offseting the loss of young New Zealanders. Even that is not assured, though. The prolonged GFC and economic uncertainty here changes New Zealand's appeal relative to other options opening up to them. We cannot count on New Zealand always being a destination of choice,
especially if we are busy recreating the sorts of urban densities that many potential immigrants are
moving from.

Maybe exporting some of our housing problem to Australia is positive move – but we are also exporting our future and accelerating the ageing
of our city as a result. It would be a
shame if by going along with the urban design consequences of consolidation that the advocates of a compact city are bestowing on us the Property Council somehow
legitimises the dogma that risks the undoing of our city.

It is time, instead, to
begin to think about quality not quantity in our urban planning. And that means really thinking outside the compact
city box.

2 comments:

Really interesting point about the "inadvertent" solution to the population growth problem by demolishing 50-80,000 houses! Clearly some interesting scheduling precision is required to keep to the 70:30 rule.

A brilliant piece which should be on the front page of the Herald if there was any justice in this world.I moved to Adelaide just over a year ago, mainly because of the cost of living in Auckland. I'm earning about the same, but the cost of living including housing here is about 25% lower. The difference is just crazy.Udale is living in a pommie higher density dream world, as are the Auckland planners. As you rightly point out the economics of developing medium / high density in Auckland are appalling, generally speaking it just doesn't work. And the planners don't understand that the reasons so much medium density housing in Auckland has been so shite is because the economics are so poor, requiring multiple quality corners to be cut.Auckland should be doing what Aus is doing so well in some locations - creating greenfield developments with a range of housing choice. Here in Adelaide, usually 15-20% of greenfield developments have smaller lot / cottage options - usually a 3 bedroom, 1 bathroom, single garage / carport cottage on a 250-300 sq m section, good quality housing, selling for about 320-350K. These properties are often selling like hotcakesThat could easily be happening in locations such as Dairy Flat and Pukekohe etc. Its a million miles from rocket science.Also good work on the stats Phil. Like you, I suspect that the planning policies will drive the population outcomes a lot lower than the "medium scenario".And finally a brickbat to the govt today on coming out with another lame excuse for "action" on housing.